What to do when a natural disaster strikes your listing

This article was last updated Sept. 29, 2022.

Although real estate agents often have to deal with properties that are damaged by tornadoes, floods and fires, there is an entirely different degree of difficulty involved with navigating the widespread problems caused by a major hurricane, earthquake or other significant natural disaster.

Right now, agents and homeowners who have property on the market (or under contract) that has been caught in Ian’s destructive path will be facing major challenges while trying to close their deals. In fact, it can be years before things return to normal. Here’s what to expect.

1. Immediately following the event

As soon as it’s safe, rescuing those who are trapped or in dire need of medical services will be the top priority. The next priorities include restoring power, providing access to potable water and providing needed supplies, such as food, blankets and diapers.

As we have seen in previous catastrophic events, restoring basic services can take weeks and even months.

2. Is the property safe?

Homeowners are eager to return home to survey the damage. Because many are already severely traumatized from the event, they often fail to recognize the wide variety of hazards that now exist, including downed power lines, venomous snakes swimming in flood waters, damaged tree limbs, mudslides, toxic mold, structures that can collapse, etc.

Many will want to salvage what they can of their belongings. Sadly, doing so can be a life-threatening decision if they’re not careful.

3. What happens to your unscathed properties that are under contract?

If a property is under contract and comes through the disaster unscathed, there are still a number of issues that can kill your deal.

It’s common for buyers to want to cancel the deal and/or ask for a price adjustment to stay in it. If you’re within the inspection or loan contingency period, the buyers can simply exercise their option to cancel.

Even if everyone wants to stay in the deal, expect lender delays and other issues to slow down the process. To close the deal, everyone must be willing to adjust to a longer closing period.

Keep in mind that your local lenders and title companies sustained significant damage as well. Their employees are dealing with their own losses and trying to get their companies up and running again.

4. Flood insurance issues

A major source of problems following Ian will be flood insurance, which most lenders require for any property located in a flood zone. Generally, there is a moratorium on issuing flood insurance immediately following this type of disaster. The same is true for earthquake insurance.

This means that unless the buyer pays cash or secures private financing, the probability of closing the deal is low until the moratorium is lifted.

5. Lending issues

I remember having both sides of a deal on a property in Malibu. About halfway through the escrow period, 90 percent of the homes in the area burned. My listing was one of the few that had no damage.

A few days after the fire, we received a letter from the lender denying our request for a short sale since the comparables (comps) didn’t support the sales price. I sent the lender pictures of all the comps (or what was left of them at least — the pads and the fireplaces.) Fortunately, we did eventually close about five months later with a short sale.

The challenge for any lender is determining the actual value after a catastrophic event. Lenders are likely to require a thorough inspection of the property plus a new appraisal.

The issue is that inspectors and contractors will be stretched to the limit because of the magnitude of the damage in the area. If needed, the sooner you contact an inspector, the better.

6. When the property is damaged

If the property is damaged and the buyers still want it, you may need to prepare everyone in the transaction for a long wait. I fought with my insurance company for three years before I got a settlement after the Northridge earthquake, and that required hiring a public adjuster.

It then took another year to repair the property. Other homeowners were still waiting for resolution of their claims at the five-year mark.

While the parties could wait to settle the insurance claims before they close, a better option may be having the sellers assign the insurance proceeds to the buyer. If the buyer was planning on remodeling or upgrading the property, they may actually welcome this opportunity.

Also, look for a whole new wave of flippers to get back in the market. Many of these folks will happily take a price reduction and handle the remodel. If they get insurance money as well, all the better.

7. Price implosion or explosion?

Historically, prices take a major hit following a catastrophic disaster, however, there’s a wild card here.

After the fires in Napa several years ago, undamaged properties shot up in value. Rents also exploded as displaced homeowners searched for places to live while their homes were being rebuilt.

8 steps agents can take post-disaster

Here are just a few ways Realtors can help those facing the aftermath of a catastrophic disaster.

• Donate to the relief efforts.
• Volunteer your time to help with the cleanup, distribute supplies and assist in any other way you can.
• Determine if anyone you know is willing to rent out a room or other vacant property they own. Be sure to use your standard due diligence process when it comes to renting or leasing property, including getting a deposit and a credit report.
• In past catastrophes, some agents have used their social media accounts as a community gathering site immediately following the event to help neighbors assist each other when first responders are too overwhelmed to meet the extraordinary demand.
• Encourage anyone with damaged property to immediately file a claim with the insurance company to get ahead of the onslaught.
• Review what programs FEMA is offering, and push these out through all your social media platforms.
• Avoid assuming that your buyers or sellers may no longer want to continue with their contracts. When there is a conflict, get your management and/or attorney involved immediately.
• Investors tend to be opportunists — look for cash buyers to be aggressively pursuing new opportunities created by this situation.
• Take time for you. Remember, many people will be severely traumatized by this event. Be kind and supportive, and do what most agents do well — be there to serve your community when you are most needed.